Blain’s Morning Porridge 19 November 2021 – Caught in a trap..
“Let’s don’t let a good thing die, When honey, you know I’ve never lied to you”
This morning: How much longer can the market madness continue? Traditionally they remain irrational for longer than you can stay solvent. Central banks must be terrified – damned if they act, damned if they don’t. The basis of markets is under threat from unbridled speculation fuelled by their actions.
I have some wildly speculative, inflammative and barely connected Friday thoughts for you all.
Earlier this week I posted an porridge: “Let’s dance.. forget reality” about all the signals pointing to massively overbought markets. They leave me nervous. Yet, there is high probability markets could stay this way for longer; juiced by the inability of central bankers to face up to the consequences of their actions over the last decade. If the distortions that have fuelled the devasting inflation of financial assets over the last decade were to end – there will be a crisis. If the Central Banks do nothing there will be a crisis. Resolving the crisis without making it worse… will be challenging. Probably impossible.
Choc Ice anyone?
As has been pointed out… by distorting prices via rate control and QE, the consequences have rippled out and warped the whole DNA of markets. Their whole basis has been genetically twisted. Traders trade on where the speculative bubbles are, not on fundamentals. Risk has been pushed down the food chain – removing it from banks, but leaving it dimly understood elsewhere. When Central Banks set bond prices and have become the market, then there is no price discovery or market behind them – hence the increasing fears even the mighty US Treasury market will prove dysfunctional, and lock solid in the absence of market makers when the Tsunami of selling hits.
These are just some of the reasons I am profoundly negative on markets – even though I’m still fully invested. I don’t like this crack-headed market, but since we can’t tell when it will stop, we have to keep dancing. I admitted many times I’ve been calling the top for years, and at least one reader has pointed out: “even a stopped clock is right twice a day.”
Now I am seriously rethinking my personal accounts. Is it time to take cards off the table? Where would I put liquidity?
- Treasuries? The classic flight to safety trade, but inflation will simply eat them away..
- Gold? Isn’t what it used to be…
- Property? Massively overpriced already…
And the wall of negativity sets me wondering some more. I expect when the inevitable flood hits, I’ll still be dithering about where to invest…
How much longer can the markets current exuberance continue? How can valuations be so out of whack?
How can Rivian, a car market that has built 162 cars (yep… count em and weep, but the number may actually be slightly less – apparently the company isn’t quite sure), have lost billions over the last 12 years and with revenues expected to be less than $1 million this year – be worth more than all but 3 other car makers producing millions of cars profitably year after year after year? At one point Rivian’s market cap exceeded Citigroup, a 200 year old bank with 200 million customers, 200k employees, $23 bln net income and $2.3 trillion in assets.
The reason Rivian is worth so much is because the market believes it is worth that much. That’s all you need to know.
The other stuff, like how it’s taken so long to remain this unprofitable and unproductive, is immaterial. Folk are telling me the stake Ford owns in Rivian will ultimately prove more valuable than Ford. To get to its $140 bln valuation earlier this week, I reckon Rivian will have its new production facilities built over night by fairies for free, and Amazon must be paying $1 million per truck. If that’s right then the company might just be worth $140 bln if it can achieve industry beating margins on every truck sold… while continuing to sell as many trucks into the future… which would kind of negate the whole idea?
Meanwhile, the whisperings are Apple loves all this EV madness… just as the EV sector inevitably implodes over the next few years, they will launch the Apple EV (a bright shinny white thing) to enormous fanfare and messianic applause sometime as early as 2025 (which means 3-4 years later…)
When I broached the subject of EV valuations on a call y’day… I was told y’day the “market’s momentum is unstoppable.” Eek… if a majority of market players believe that… the rest of us should be running for the hills.
At its simplest: energy is mass X momentum. That’s why we can feel when something suddenly swings 180 degrees from say North to South. The momentum carrying us North continues to do so, even though we may suddenly be pointing south. Too many folk think the market has momentum… that we can sense momentum changing.. But what if…? What if the market has no mass? It doesn’t. The market is just a voting machine. Nothing more. It cares not a jot if it goes North or South. And since it has zero mass – although it carries the baggage of trillions of dollar hopes and dreams – you won’t feel that moment when sentiment suddenly reverses 180 degrees.
I’m looking at the market and concluding central banks must be terrified by the current signals.. As the song says; this is burning out of control….
After reading through yet more undecipherable tripe about the scientific and mathematical underpinnings of crypto-currencies, I think I might just have figured out what Cryptocurrencies are really for. (Either that, or I’ve been reading too much Zerohedge… (Which I love by the way, but some of the readers comments are straight out the Institute of F***wittery.))
Inspired by divine guidance, I have ascertained Cryptos were invented by a really smart, undercover top-secret state financial agency as a means of absorbing the excess liquidity governments and central banks created via QE and other handouts…. and stop it remaining in the hands of people too stupid to have access to it! Yep, Buttcon was invented by the CIA to absorb the so-called “stupid money” slice of market liquidity!
Meanwhile, the successor organisation of KGB is in a joint venture with the FBI down in Austin, Texas with “Meme Stock Inc”, working together to create a constant stream of “meme-stocks” for the same reason. Turns out, absorbing “stupid money” is one of government’s primary functions – who knew?
Unfortunately, it’s got out of control as the volume of stupid money now exceeds “moderately sensible” money, as these agencies abilities to invent increasingly stupid ways to lose money dries up.. Which is why the programmes may be halted.
Apparently the real lizard-men who run the world, Bob & Cheryl from Reading and Chuck & Karen who live in cute Washington suburb, and who work for the FCA and SEC respectively, are about to pull the plug from under the schemes. They will press the regulatory FT button. Soon.
The final straw was a cute little dog logo.
I spent Wednesday travelling, and one of the things I peripherally noticed walking through Dubai airport were ads for something advertising Floki Inu. I wasn’t paying attention, and wondered if it was a new food delivery or ride hailing service.
It should have registered:
- The logo is a dog in a Viking helmet (albeit a historically incorrectly horned helmet).
- Vikings was one of my favourite TV shows – and one of the maddest characters was Floki the deranged boat builder and monk-murderer.
- The name is also a play on Loki the Norse god of mischief and damnation.
- And to cap it all, Elon Musk owns a dog called Floki – surprise me… not in the least.
When I took my seat on the plane, I come across the story in detail (because on Emirates you can remain online all the way to Cairo.) All around the Globe regulators are pondering the financial probity of a product which makes only one claim – that it will repeat the market success of Doge Coin: Missed Doge? Get Floki. FFS! And then I read a piece by an analyst saying buy, because it’s going to go up because so many people will fall for it. Then I found some price history. Since it went stratospheric after the marketing hype it rose 7X to now having collapsed to up 50%, losing 30% of its value y’day.
See folks – that’s what a real crypto asset looks like. It was, it is, and always be worth nothing except what the next idiot will pay for it.
It’s called Pump and Dump. You want to be in on the pump and make sure you are first out then the inevitable dump comes. And, incredibly, people fell for it.
Out of time, and since its Friday in Cairo I’m off to look at the inspiration for the Toblerone Bar.
(Seriously, this is my first time in Cairo, and its dirty, filthy, noisy, in-yer-face, teeming with people, and possible the worst driving I’ve ever seen… and I absolutely love it!)
Have a great weekend